From Naked Capitalism…..

I had wondered why, given the swift and brutal contraction of the commercial paper market in August and September, that there weren’t more apparent signs of distress. Outstandings fell an eyepopping $368 billion.

Commercial paper is short-term borrowings, maximum 270 days, but typically much shorter. If a borrower can’t roll his commercial paper but still needs the dough, he has to either find other sources of funding pronto or sell other assets. And given that the contraction was almost entirely in the asset backed commercial paper market, meaning CP supported by mortgages, car loans, credit card receivables, one would have expected to see a change in borrowing terms in those markets.

This Bloomberg article lays out the answer….

Banks shut out of the market for short-term loans are finding salvation in a government lending program set up to revive housing during the Great Depression.

Countrywide Financial Corp., Washington Mutual Inc., Hudson City Bancorp Inc. and hundreds of other lenders borrowed a record $163 billion from the 12 Federal Home Loan Banks in August and September as interest rates on asset-backed commercial paper rose as high as 5.6 percent. The government-sponsored companies were able to make loans at about 4.9 percent, saving the private banks about $1 billion in annual interest.

To meet the sudden demand, the institutions sold $143 billion of short-term debt in August and September, according to the FHLBs’ Office of Finance. The sales pushed outstanding debt up 21 percent to a record $1.15 trillion, an amount that may become a burden to U.S. taxpayers because almost half comes due before 2009.

There is no way to put a happy spin on this one. I agree with Naked Capitalism’s comment section on this one. Except I think that the American people as whole must share some of the blame.

This article starts off scarily enough….

(Fortune Magazine) — This past summer’s subprime meltdown involved about $900 billion in now-suspect securitized debt, reckless lending, and consumers who buckled under the weight of loans they couldn’t afford. Now another link in the consumer debt chain – credit cards – is starting to show signs of strain. And the fear that the $915 billion in U.S. credit card debt (an uncannily similar figure) may blow up has major financial institutions like Citigroup, American Express, and Bank of America strapping on their Kevlar vests.

But like any good ghost story, it saves the punch line for last….

It’s a sign of the times that, according to one survey last month, 6% of British homeowners have been using their credit cards to pay their mortgages. That’s suicidal, of course, given that credit card interest rates are more than double even the heftiest mortgage. Keep your fingers crossed that it’s not a trend that crosses the Atlantic.

Man, I have read a lot of scary things over the last couple of months. But that has got to be the scariest. 6% of all households pay their mortgages with credit card debt? If this figure was true, it would mean the end of the British financial system. In the first place, it would guarantee that at least 6% of all houses in Britain would have to go into foreclosure. In the second place, it would mean that banks would lose all of the money loaned to those people through unsecured loans (credit cards). In the third place, the banks would not be able to recover very much money from house sales because so many other people would be in the same boat. Bank reserves are not all that high, and I don’t think they could take that kind of loss.

The good news is that it is not really as bad as all that. I did some digging; the survey is counting all the people who had to use their credit cards once or more in the last 12 months to make one mortgage payment. So it’s not like 6% of British homeowners have been depending on their credit cards to keep a roof over their heads month after month.

The bad news is that the fact that 6% of British homeowners have had to make recourse to credit cards to make a mortgage payment is still not good news. Especially if you consider that fact in the light of this graph here and this report here.

It is probably just my sick sense of humor, but I loved this rant “thanking” the Social Security Administration for ripping off seniors with the latest cost of living increase.

From Yahoo news..

According to Shanghai’s Xinmin Evening News Sunday, numerous petrol stations along the major Shanghai-Hangzhou highway were jammed with vehicles after they had run out of supplies of diesel.

The report also said people hoping to depart the city for weekend outings had difficulty finding petrol stations selling supplies Sunday morning.

In some parts of the country, commuters were being limited to purchases of only 100 yuan (13 dollars) of petrol, or were forced to buy premium fuel due to shortages of low-octane petrol, various reports said.

Truckers were also finding it difficult to tank up with diesel at a time when seasonal demand was expected to rise due to the ongoing harvest season.

A quote from the evil MSN

But people keep giving him the same silly line, that it’s all been discounted, which is a variation of “it’s contained.” He says that there are more dark-matter downgrades to come and that some of the insurers of credit may find themselves in serious trouble as credits go bad. He points out that if the insurers get into trouble, then all of the credits they insure obviously will worsen.

For those who don’t know, there is an absolute mountain of paper that trades where it does only because it has insurance. Sort of like the paper that traded where it did because it was supposedly AAA, and that rating turned out to be worthless. Any AAA, AA, A or whatever rating that’s based on insurance may not be worth the paper it’s written on.

It’s a lesson that hit Merrill Lynch (MER, news, msgs) hard. Witness the subprime fallout behind the company’s sobering third-quarter earnings report. Merrill wrote down about $5.8 billion of $14.2 billion in what’s known as super-senior subprime assets — the stuff that’s supposedly above AAA and bulletproof.

When asked on the conference call if everything was marked where it could be sold, there was no answer, leaving folks with the idea that there was plenty of stuff still marked to model. And you can be sure that if Merrill Lynch has this problem of potentially mismarked paper, so do all of the brokers and probably some of the big banks. This is a huge deal. (Memo to nonbelievers: The problem is spreading, it has not been discounted and it has not been contained.)

To end on a more positive theme: If you think of the return to sanity as a positive development, there’s reason to be encouraged by Investors Intelligence’s report, which recorded the most lopsided sentiment reading in many years. Last week, bulls stood at 62% and bears at about 19%. For anyone who’s been around the stock market for any length of time, that is a clear warning sign.

Originally posted over at Ape Man

If you have been keeping awake as the talking heads drone on, you have probably heard of America’s problem with aging infrastructure. After all, we have had the levees break in New Orleans. We have had a bridge collapse in Minnesota. We have a major dam threatening to blow in Click Here to continue reading.

This post from Jeff Matthews is anecdotal in nature. Still, it is a useful reminder that a fall in the value of the dollar is not without its downsides for American manufactures. A quote….

Rohm & Haas, in case you never heard of it, is as plain-vanilla a company as they come. By “plain vanilla,” I don’t mean “low-tech” or “mediocre.” It’s just a low-profile specialty chemicals company that makes stuff you use every day—the computer you’re using to read this, for example, is using semiconductors packaged in Rohm & Haas materials—yet never think about.

Furthermore, the company’s chemicals are at the heart of not only the U.S. manufacturing economy, but the world’s economy as well, with half its business coming from overseas.

And what Rohm & Haas was saying while the aforesaid Bloomberg article scrolled across my machine, was this:

Now, as we speak, we are seeing dramatic increases with no seasonal easing in key raw materials… We now expect to see an increase in the total raw material cost for Q4 on the order of $50 million…. This is a development of the last two or three weeks.

In other words, since the surprise Fed rate cut in late September, prices of the company’s key raw material have spiked.

At least some people are trying to hold the line

This from the Financial Times via The Naked Capitalist…..

At a time when America, or at least Wall Street, needs a spineless hack as the head of a key agency, it is saddled with a credible man of principle: James Lockhart, OFHEO’s director. Yale graduate, Harvard MBA, lieutenant in the nuclear navy, risk management software entrepreneur, senior insurance executive, and former head of the Pension Benefit Guarantee Corporation. “A real hard-ass” in the words of a mortgage finance executive. It doesn’t seem as though he can be intimidated by the threat of being sent back to Plano, Texas, to work in his uncle’s car dealership.

Lockhart was appointed in the middle of last year to the directorship when there was no immediate, obvious cost to anyone of having a competent, effective regulator who actually knows what those buttons on his computer are connected to.

What is worse, his resistance to Fannie and Freddie ballooning their balance sheets and loosening their controls is reinforced by his experience in a previous job. The Pension Benefit Guarantee Corporation, a thinly capitalised government insurance operation, which charged inadequate premiums for covering beneficiaries of failed pension funds, was in turnround, as they say in Hollywood, during his tenure from 1989 to 1993. Lockhart had to clean up other peoples’ messes and one can guess he doesn’t want to do that again.